An oil pump jack pumps oil in a field near Calgary, July 21, 2014.TODD KOROL/Reuters
Twin Butte Energy Ltd. has hung out a For Sale sign as its lenders are poised to reduce its borrowing capacity amid depressed crude prices.
The heavy oil producer also chopped its dividend, contributing to a 26-per-cent slide in its shares on Thursday.
In another sign of worsening pain in the oil patch, Twin Butte said it has hired Peters & Co. and National Bank Financial to advise it in a strategic review process that could result in a sale of the company, some of its assets or a debt restructuring.
The move comes as it negotiates with its banking syndicate, which is expected to reduce the company's credit facility to $230-million from $275-million. Twin Butte suspended its monthly dividend, effective immediately.
This week, crude prices sank to lows not seen since 2009, and Canadian heavy oil prices have also suffered with a discount that puts more pressure on revenue among producers such as Twin Butte. Numerous forecasters have predicted that the oil market rout will extend well into 2016 after the Organization of Petroleum Exporting Countries made no changes to output policy at the group's meeting last week.
Over the past year, lenders have been relatively lenient on debt terms as energy companies dealt with declining cash flow due to the collapse in crude prices. But their patience is wearing thin in many cases. Credit facilities have been cut along with the value of reserves, and a few struggling players have been pushed into receivership.
Twin Butte joins a host of Canadian exploration and production companies that have launched strategic reviews to try to salvage some value, and some of those have extended over several months without a resolution. Those include Zargon Oil & Gas Ltd. and Parallel Energy Trust.
Twin Butte's ability to keep operating as a going concern is now "limited," said Aaron Bilkoski, an analyst at TD Securities.
"The company is now considering strategic alternatives at $37 (U.S.) a barrel – a challenging environment to sell assets, sell the corporation, or refinance the corporation," Mr. Bilkoski wrote in a note to clients.